Trading Thoughts

In my May 2018 post, I discussed trade compliance training options for companies and individuals.

As a follow up, I’ve compiled different sources of import training below. A great place to start is the free e-learning training available on the US Customs and Border Protection (CBP) website. I’ve provided the links below but encourage people to review the CBP site on occasion to find new training or live webinars that are offered.

Besides training, you should reference the regulations directly. There are many published versions of Title 19 Code of Federal Regulations (CFR) on various web sites. One option is to access the e-CFR directly from the US Government Publishing Office here. You will also want to check for any updates or pending changes for the sections you are reviewing. These changes are found in the Federal Register and you could search it for the section reference or you can use these steps below to see if your section has any changes.

Find the text of the regulation in the annual edition of the C.F.R., and make note of the revision date of the title. Then review the most current month of the List of CFR Sections Affected (LSA) for references to page numbers in the Federal Register. If LSA lists your section with a newer date then the e-CFR, review the Federal Register cited to see the text of the proposed, new, or amended changes to the regulation.

Another option is to search or browse the CFR Parts Affected from the Federal Register. That page is found here and provides timeframe and date range search options.

Either way, if you are relying on CFR text to inform a decision, you should verify that it’s the current rule.

US Customs and Border ProtectionCBP is responsible for enforcing import regulations, but also with enabling the import community. Their site provides quality training and resources, though most of it is text-based and there is limited video or other e-learning. The CBP site content and all of these training sources should be reviewed before you need to consider any other paid training. However, if you are providing training to staff roles that would not be required to learn the regulations, only the rules that impact their job, then it’s still recommended that your company create custom function specific training. See my May blog post for training development recommendations.

The following is a compilation of key CBP training and related documents:2018 Trade Symposium08/14/2018 - 08/15/2018 in Atlanta, GAThis is a live CBP program that covers a variety of trade topics of interest to importers. New for this year is the opportunity for importers to conduct a one-on-one discussion with leadership from the Center of your choice.Basic Importing

Informed Compliance PublicationsCBP provides a large number of written publications on a variety of subjects that are found here. These are comprehensive guides that provide excellent interpretations of the regulations. Many are so specific that they are only useful if you engage in that activity. However, there are general guides listed below that should not be overlooked.

ACE Portal TrainingCBP provides many guides and documents on the ACE Portal. The page can be found here. There are some short videos found on the same page that provide quick answers to specific ACE topics including:

In my May 2018 post, I discussed training options for companies and individuals.

As a follow up, I’ve compiled different sources of export training below. A great place to start is the free e-learning training available on Census website. It’s found under the foreign trade section of the Bureau of Industry pages but I’ve provided the links below that also include other web sources for free export training.

For those that like reading the regulations directly, you can download a PDF of 15 Code of Federal Regulations (CFR) Part 30 that covers foreign trade here.

US Department of Commerce – Bureau of Industry and SecurityThe BIS is responsible for enforcing export regulations, but also with enabling the export community. The BIS provides a great deal of quality training and resources on their site (or through the Census site). All of these training sources should be reviewed before you need to consider any other paid training.

These are some highlighted courses and resources but take some time to search through the BIS website to find other available content.

The following is a compilation of BIS training:US Census Bureau webinarsFor an introduction to exports and how to get started, check out the US Census Bureau webinars (live and recorded) covering the basics, including:

Training is critical to a successful trade compliance program. A solid compliance strategy, supported by effective training, helps staff do their jobs confidently and correctly. This article provides some options to consider as you look for ways to provide overview, role-based, and refresher training to staff supporting trade activity. Whether you are responsible for all trade training at your organization, supporting your team, or an individual needing knowledge, this article provides direction to get you started.

If your company imports or exports goods, leverages free trade agreements, or enters into global contracts, you likely have various staff involved in these activities—staff that require different training depending on their particular role. Most large organizations can easily identify ten to twenty unique roles supporting trade activity. While you can use general overview training for all these roles, most will also require topical training that addresses the learning objectives they require to successfully execute their role. Creating and maintaining all this training internally is a daunting task and would require dedicated full-time resources. But there are options that support getting the right training to the right people.

Start by Understanding Your AudienceAs with all training delivery, we first need to answer some questions to understand what’s required.

What are the roles and activity that needs to be supported?

What tasks must they complete?

What level of detail is required?

How often does the content change and require retraining?

What mode of training is best – e-learning or instructor-led?

Does the training need to be supported with tools such as reference documents, flow charts, written procedures, or access to a subject matter expert?

Ideally, someone within the organization creates a training matrix related to all trade activity, that identifies all roles, activity supported, core mandatory training, role-specific training, and optional training. The trade training matrix must be comprehensive and is often a large list of roles when you consider trade activity supported by Logistics, Regulatory, Procurement, Sales and Marketing, Research and Development, Shipping and Receiving, IT, and even the mail room. There are many training matrix templates available online that can referenced for ideas. For trade, this matrix is logically owned and maintained by the trade compliance team. If owned by HR, the trade compliance team should still be providing input as subject matter experts.

Getting Training ContentThere is a great deal of training content for international trade available online. Much of this training is available through government sites and is free. I will provide follow up blog posts with links to recommended import and export training.

Overview Training – Create Your Own!The challenge with most “canned” training is that you must take what you get and can’t add in your own messaging. That’s why I recommend custom training to support your largest audience. This includes high level overview training for all employees for guidance on imports, exports, sanctioned countries and individuals, antiboycott, and potential penalties. This training can be anything from a recorded presentation to instructor-led sessions. The benefit of custom training is that you can include content that matches your activity and also tell staff where to find trade policies and other corporate resources.

My suggestion is to start with a canned overview course that you can edit and make it your own. For example, I provide companies with the source files (PowerPoint, Captivate, Storyline, etc.), so you can quickly add in unique messaging and references to your resources. I strongly recommend adding a video recorded message at the beginning from your CEO, high-lighting the importance of the training and enforcing that the company has trade policies that are part of the employee code of conduct. Employees are much better engaged when they view training that looks like it comes from the company.

Most overview training for import or export can be delivered in 10-15 minute modules. They can support multiple languages and are easily delivered globally to staff.

Role-specific Advanced TrainingOnce you define a training matrix with a role-based audience analysis for your company, you can identify all of the required training content. This road map lets you quickly create and maintain the training.

Your trade compliance team members are experts in their areas and have generally gathered training from online sources, local trade groups, or consulting companies, but this does not make them good training developers. The down-side of having your subject matter experts create training alone is that it takes longer, is poorer quality, and may not address the instructional needs of adult learners. I recommend partnering trade SMEs with an instructional designer (ID) and course developer, to quickly develop content. Even if you have to hire ID and course developer contractors, you save money by not wasting your staff time doing something outside their expertise.

Keep Training FreshDon’t make people complete the same annual training course over and over. Trade rules and trends are constantly changing and it’s worth including new content to train and engage your staff. Make sure you understand what’s new and relevant to your trade activity and incorporate it into your annual refresher training. Use the update to introduce new team members, resources, and company trends. It’s not hard or expensive to refresh training content and your staff will appreciate the effort.

ConclusionUse industry best practices for training development to get the required trade training in place quickly. Leverage instructional designers and course developers to augment your trade experts to build complete and effective training that engages your staff and drives trade compliance.

A company merges with, or acquires other companies, to realize identified benefits – growing the business, gaining new or complimentary product lines, and expanding into new markets. This merger and acquisition (M&A) activity makes sense when the benefits outweigh the costs. To determine all the costs, the acquiring company’s M&A team completes a review of the company to identify potential liability.

When it comes to trade activity, risk and liability are not always obvious. And since most M&A happens with limited review and few people involved, it’s not reasonable to do a complete audit and analysis before closing the deal. The good news is that M&A teams can learn a lot by asking the right questions about trade activity. While this article suggests some steps that should be taken before a purchase, it is always recommended that a complete trade assessment be completed as soon as possible after the closing.

A common merger practice is to set a reserve fund for unforeseen regulatory issues and fines. This may work in many cases and makes the M&A team feel like they’ve put “insurance” in place. However, M&A integration periods are a particularly vulnerable time for companies where employees of the acquired company are often let go or decide to leave. This can increase the likelihood of whistle-blower reporting and Customs inquiries. And under certain provisions, Customs pays individuals a large percentage of fines collected which provides a monetary incentive for going after non-compliance. Ultimately, if Customs finds your company responsible for the acquired company errors, it will also impact your legacy operation with heightened auditing and scrutiny. The bottom line is that you don’t want to try to assess and back-fill your trade program compliance capability during a Custom’s inquiry. Customs auditors are experts and will immediately understand that you failed to do due diligence.

So how can your M&A team address international trade? For starters, all M&A staff evaluating trade activity should understand and ask the following questions. And ask appropriate follow up questions based on the responses.

What is the current trade activity? Import, exports, or both?

Which countries are involved in the trade activity?

What type of materials? Any known special duty or controls? Example: ADD/CVD tariffs such as imported steel

Are there corporate trade policies in place?

Which import brokers and freight forwarders are used to facilitate shipments?

Is there dedicated staff to support the trade processes and compliance with corporate trade policies?

Assuming import or export activity, are written procedures in place to support:

Material classification for tariff codes, country of origin, import or export controls

Other government agency controls (ex. US FDA, DEA, FIFRA, TSCA, or other applicable country or region controls)

Restricted (sanctioned) party screening

Destination country controls for exports

Free trade programs

Do the acquired products differ from your products – do they require additional import or export controls - and therefore trained staff? An example includes products that also fall under military controls (ITAR) that require special classification and data controls.

Does the acquired company believe they have trade violations or have they been investigated or fined for trade violations? What type of violations?

What to Expect from the M&A – the Good and the BadAs with most activity, you can expect to identify some good and bad aspects related to a company’s trade activity.

First the GoodA company set up to do regular international trade has generally worked through the requirements. If they have dedicated staff identifying key trade data like tariff codes, country of origin, and import and export controls, then they may be compliant, or more compliant, than a company without dedicated resources or one that relies only on external third party companies to facilitate shipments.

If you learn that the company has written trade policies and procedures, then you can assess that they have put a foundation in place upon which they can build a compliant trade program. But as with most corporate policies, they are only as good as the processes which are actually followed. And even the most documented processes can fall short of compliance if they are not evaluated through internal audits.

The M&A review can uncover the general state of the trade data listed under point 7 above. If a company can demonstrate a complete product database that includes trade data associated with all imported or exported material, then you know that they put the effort into identifying and populating the data. While you most likely won’t be able to evaluate the data for accuracy, companies that aren’t compliant tend to have big gaps in their trade data and this is a red flag indicating higher risk for violations.

Companies that take advantage of free trade agreements (FTA) and duty drawback pay less duty. Free trade agreements have very specific requirements that must be met. The burden is on the company to qualify their product under an FTA. Duty drawback lets a company recoup duty paid for imported material that is later exported. Both of these programs require a well-defined written process. If a company responds that they support these programs, then a follow up review of the processes can help determine if they are likely to be compliant.

Alternatively, companies that do a lot of importing from countries that have FTAs in place with the US, but don’t claim FTA benefits, may be able to retroactively claim significant duty reductions and be reimbursed for qualified duty discounts. The same is true for duty drawback and large importers or exporters have been known overpay duties in the millions of dollars. These types of savings can easily pay for assessing the acquired company and putting best practice trade processes in place. But making these claims is time sensitive and usually limited to a one year look-back.

Another upside of mergers can include merging with a company that has industry best practices in place with the staff to support them. If your company lacks due diligence in some areas, acquired trade staff can help back-fill your processes during the integration. But first you must know your own company’s capabilities. It is recommended that you leverage a trade compliance integration specialist to help support this process.

There are many more positive aspects of mergers such as identifying best practices of data management, learning of new third party companies for import brokers and export freight forwarders, and how compliance has been facilitated throughout the supply chain. It’s a time of great opportunity that goes beyond the expected merger benefits.

Now the BadThe US Customs laws, and those of most other countries, have a 5 year statute of limitations, with the common violations and potential penalties identified below:

The downside reality is that most companies that engage in international trade probably have some existing violations that can be discovered. For the acquiring company, this means you are now responsible for up to five years of potential liability. When going into complete an M&A review, it’s important to understand each of these areas and how to identify potential red flags. For this article, we can provide a high level look at the common areas to learn what it is and the likely red flags.Product tariff classification: First is product identification using the import harmonized tariff system (HTS) or export schedule B. The focus is on import HTS as that’s what drives duty and is Customs’ primary focus. All material must be classified and a company following best practices can provide a written procedure, product database of classified material, including classification justifications, and plan for annual update reviews. Red flags include not having written processes or audit plan, not being able to produce HTS data, or relying instead on third party companies or product vendors for classifications.Export control (ECCN) classification and licenses: All exported material must be classified for US export controls (or similar controls for other countries) to identify sensitive material (Ex. can also be used for military purposes) and those that require an export license before shipment. Classification requires reviewing the product design and specifications against the regulations. There is no other way to make the determination. Red flags include no ECCN data for export products, all exports being identified as not controlled (EAR99), or relying on third party companies to identify controls. Related to this is technology controls and if a company has export controlled product, then follow up must be made to understand if any employees are restricted from accessing the actual product technology.FTA qualifications: Free trade programs require product qualifications that must be verified each year. Red flags in this area include no written process for qualifying product under claimed FTA, not being able to produce an FTA product database that shows qualifications, and no process for annual updates. With FTA programs uncertain, another red flag may be not having a contingency plan if specific FTA programs go away.Sanctioned country and party violations: Companies that don’t screen their customers, suppliers, and third party service companies risk violating sanctions laws. Restrictions on shipments to some countries and individuals are increasingly complex. Red flags for this area include not having dedicated screening tools, regular screening processes, or no ad hoc screening of new customers, suppliers, and service companies.Anti-dumping / Countervailing (ADD/CVD) duties: This area has been in a state of change since President Trump took office. Failure to maintain a process by which all classified imported material is scrutinized for potential ADD/CVD duties represents a very risky import practice. The red flag is no knowledge of whether goods fall under ADD/CVD. As critical is whether any product is currently under ADD/CVD bond pending a final order determination. In this case, further review should be completed to identify potential liability.ConclusionThe more information your M&A team gathers on the current state of the acquired company trade program, the better understanding of potential risk and liability you can establish. Trade information can be gathered through focused questions and requests for key trade data. High level analysis can identify red flags that provide a path to direct follow up or document potential risks and liability. Starting the review during the M&A process increases the likelihood of discovering issues early. This provides a benefit as Customs (imports) and the Bureau of Industry and Security (exports) aggressively mitigates most penalties for companies that voluntarily disclose errors. Being proactive ensures that you reap the benefits of the M&A while limiting the downside risks associated with international trade.

To consider this question, it might make sense to think about why companies engage in global trade in the first place. Companies leverage international trade because their imports and exports allow them to increase profits or gain some market advantage — but those advantages aren’t free. One of the costs of engaging in international trade is that you become subject to following the rules and regulations of the countries in which you do business.

And just as you need to pay for the trucking to get your goods to port or for the shipper to move them, you also need to figure into your costs what you pay for the activity that will keep you in compliance with trade regulations. The good news is that there are benefits to compliance activity. Some of these benefits are realized by the importer or exporter and others support the countries that are party to the trade.

Trade laws benefit countries by:

Collecting duties that fund government programs

Protecting industries from unfair foreign competition

Protecting sensitive technology

Safeguarding against access to material that can be used for harmful purposes – terrorism, illicit drugs, weapons, etc.

Providing visibility through statistics to imported and exported materials and industries

Reducing time to move goods – eliminates goods being held up in Customs due to errors

Eliminating trade-related penalties

Reducing or eliminating duty by using free trade programs or duty draw-back

Safeguarding the company reputation

Multiple teams within companies support trade activity. They include supply chain / logistics, product development, regulatory, finance, and law. These teams’ activity can range from maintaining product specifications, to classifying products, to completing the documentation to move the goods. In companies whose trade processes are highly defined, efficiency increases and the cost of importing and exporting goes down. Often this is through reduced labor to correct issues with Customs, taking advantage of trade programs that reduce or eliminate duty costs, or through a reduction in time to market.

There are no good shortcutsSome companies try to lower labor costs by taking shortcuts in their trade due diligence. However, many find that responding to subsequent Customs inquiries can easily lead to more hours of labor activity to correct these issues, resulting in few, if any, savings. For example, a simple Form 28 Request for Information by Customs questioning a product tariff code will likely trigger a flurry of time-sensitive activity, including:​

Reviews by compliance manager and product classifier, who follow up with others

Engaging product experts in Research and Development or Procurement, who likely engage others to research and review specifications and collect required documents

Obtaining a product sample

Engaging Law Department to review the response

Analyzing prior imports or exports of the item to identify impact

Completing form 28 and sending everything to Customs

In a best case scenario, Customs will agree with you, but if they don’t, this can trigger duty reviews of prior shipments of the same item and you may have to pay additional duty and penalties. One investigation can lead to other investigations, and if good trade processes are not in place, employees will have higher stress levels trying to support your trade program.

Clear processes and policies are keyThe bottom line is that goods don’t move unless required import or export data is on the shipping documentation, so something must be put on the forms. Even entering bad data takes time - why spend money to use bad data that increases penalty risk when time could be spent doing it right. Creating and maintaining effective trade processes across all relevant departments is a smart thing to do. It drives cost savings, leads to higher employee satisfaction, and increases customer confidence.

Employees that support companies that engage in trade must remember that complying with trade laws is not optional. Most companies already have an employee policy in place that compels staff to comply with these rules. Just as it wouldn’t be okay to violate consumer protection rules or to engage in bribery, trade laws serve important goals that ultimately protect your company’s reputation and help you maximize your competitive advantage.